Matter of Steyn v. CRTV, LLCMatter of Steyn v. CRTV, LLC
Petitioners appeal from a judgment of the Supreme Court, New York County, (Eileen Bransten, J.), entered November 2, 2018, which, to the extent appealed from, vacated the arbitration awards of attorneys’ fees to petitioners and entered a money judgment against respondent in favor of petitioner Oak Hill Media, Inc.
Ervin Cohen & Jessup LLP, Beverly Hills, CA (Michael D. Murphy of the bar of the State of California, admitted pro hac vice, of counsel), and Fishkin Lucks LLP, New York (Erin C. O‘Leary of counsel), for appellants-respondents.
Browne George Ross LLP, New York (Jeffrey A. Mitchell and Judith R. Cohen of counsel), for respondent-appellant.
OPINION
RENWICK, J.P.
This appeal stems from an
The primary issues presented on this appeal are 1) whether the arbitrator manifestly disregarded the law when she awarded attorney‘s fees in favor of Steyn as the prevailing party; and 2) whether the arbitrator exceeded her power by addressing OHM‘s counterclaims against CRTV when CRTV never agreed to arbitrate any dispute with OHM. For the reasons explained below, we reject CRTV‘s argument on the first issue, that the arbitrator manifestly disregarded the law when she awarded attorney‘s fees, but, we agree with CRTV on
Procedural and Factual Background
This appeal stems from a dispute between Mark Steyn, a renowned author and television and radio personality, and CRTV, an online television network, currently known as BlazeTV, which features conservative commentators such as Glenn Beck and Phil Robertson. In 2016, CRTV and Steyn entered into a “Binding Term Sheet” (Term Sheet) for the production and distribution of a television show to be produced in Vermont. In the Term Sheet, the parties promised to cooperate and work with each other, but their ultimate responsibilities were divided. CRTV retained control over business decisions for “hiring a production staff and building a set in Burlington, Vermont.” Steyn was responsible for delivering 200 shows a year, each 48 minutes long. His responsibilities to deliver content were to begin as soon as the Burlington studio was “fully functioning.”
The Term Sheet provides that the document “shall be governed by the laws of the United States and the State of New York, without reference to conflict of law principles.” The Term Sheet further provides that the parties agree that any unresolved disputes “shall be settled exclusively by confidential binding agreement in accordance with the Federal Arbitration Act” and “Rules of the American Arbitration Association (AAA) applicable to general commercial disputes.”
In a separate letter memorandum, an entity related to Mark Steyn, OHM, was retained to provide services to Steyn. Under the letter memorandum, which did not contain any arbitration clause requiring binding arbitration, OHM agreed to procure guests for the show, as well as hire third parties such as makeup artists and public relations firms. OHM principal Melissa Howe, who was also a business partner of Mark Steyn and his manager, executed the letter memorandum agreement.
In February 2017, CRTV abruptly cancelled the show after just two months on the air. The network claims cancellation was due to poor performance by its host. Mark Steyn, however, claims that he performed his obligations under the Term Sheet, but that “extraordinary personnel problems, construction delays, and technical shortcomings in the Steyn studio largely prevented content production.” On February 20, 2017, CRTV
Before the arbitration commenced, CRTV objected to the arbitrator‘s jurisdiction over OHM‘s counterclaim. On January 22, 2018, after the conclusion of the hearing and submission of posthearing briefs, the arbitrator issued an interim award, finding that CRTV failed to meet its contractual obligation to provide a fully functional studio, did not have the right to declare a breach, and was in breach of its obligations to Steyn and OHM. Conversely, the arbitrator found that petitioners Steyn and OHM had performed their obligations under the contract, and thus Steyn was entitled to $1.8 million in damages, and OHM was entitled to $908,124 in damages and unreimbursed expenses. Regarding attorneys’ fees, the arbitrator observed that petitioners Steyn and OHM had requested fees in their counterclaim, CRTV had requested fees in its answer to the counterclaim, and
By post-interim award briefing, CRTV argued that attorneys’ fees should not be awarded because it did not demand such fees in its initial or amended demand, prehearing briefs, or
In the final award, the arbitrator discussed the issue of jurisdiction over OHM, noting that the letter memorandum, unlike the Binding Term Sheet, did not have an arbitration provision. The arbitrator observed that CRTV had only raised the jurisdictional issue twice, in its answer to the counterclaim and in its posthearing reply brief. Substantively, CRTV participated in defending against OHM‘s claim, by submitting exhibits and offering testimony to rebut its damages. Ultimately, the arbitrator found that since CRTV did not seek a stay of arbitration as to OHM, and instead participated, it waived any jurisdictional objection. Therefore, the arbitrator awarded OHM $908,124 in contractual damages against CRTV.
Regarding attorneys’ fees, the arbitrator found that both parties requested such relief in their pleadings. The arbitrator disagreed with CRTV‘s contention that the answers to the first and second counterclaims, as well as the AAA cover sheet, did not represent a request. Thus, after a reduction for overhead and other nonrecoverable costs, the arbitrator awarded petitioners Steyn and OHM $1,012,729 in attorneys’ fees.
On February 28, 2018, Steyn and OHM commenced this
Discussion
We first address the award of attorneys’ fees. We are mindful that courts possess very limited authority to review an arbitration award (see Matter of Goldfinger v Lisker, 68 NY2d 225, 230-231 [1986]; see also Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 NY3d 247 [2005]). Indeed, the parties agree that manifest disregard of the law is the only appropriate ground to vacate the arbitrator‘s award of attorneys’ fees (see generally Wien & Malkin LLP v Helmsley-Spear, Inc., 6 NY3d 471 [2006]).
For an award to be set aside for manifest disregard, the arbitrator must understand and correctly state the law, but proceed to disregard the same (McLaughlin, Piven, Vogel Sec., Inc. v Ferrucci, 67 AD3d 405, 406 [1st Dept 2009]). Application of the “manifest disregard of law” standard requires the court to make, in essence, three inquiries: (1) whether the legal principle allegedly ignored by the arbitrator was well defined, explicit, and clearly applicable; (2) whether the arbitrators knew of the governing legal principle; and, (3) whether knowing that principle, the arbitrators refused to apply it or ignored it (id.; see also Bear, Stearns & Co. v Ontario, Inc., 409 F3d 87 [2d Cir 2005]; Wallace v Buttar, 378 F3d 182 [2d Cir 2004]). A court may not vacate an arbitration award because it thinks the arbitrators made the wrong decision (Wallace, 378 F3d at 190). Indeed, even if the court thinks that the arbitrator reached the wrong result or applied the law incorrectly, the court should nevertheless confirm the award, “despite [the] court‘s disagreement with it on the merits, if there is a barely colorable justification for the outcome reached” (id. [internal quotation marks omitted]).
Whether manifest disregard of the law occurred here depends on whether New York law on attorneys’ fees controlled the arbitration. It is well established under New York procedural rules and substantive law that arbitrators are not permitted to award attorneys’ fees in arbitration (see e.g.
In this case, Supreme Court found that the arbitrator was neither authorized to award attorneys’ fees by statute (first exception), nor by the parties’ agreement (second exception), but concluded that the third exception might apply. Supreme Court found, however, that it was not unmistakably clear that the parties intended that attorneys’ fees be awarded. Specifically, relying on this Court‘s precedent (Matza, 33 AD3d at 493; Matter of Stewart Tabori & Chang [Stewart], 282 AD2d 385 [1st Dept 2006]), Supreme Court found that the parties’ requests for attorneys’ fees, in their respective pleadings, constituted mere “boilerplate requests” that did not satisfy an “unmistakably clear” intent to agree that attorneys’ fees be awarded (Matza, 33 AD3d at 494-495).
We find, however, that the arbitrator did not manifestly disregard the law because it was not unreasonable for the arbitrator to conclude that the “unmistakably clear intent” requirement did not apply. It appears that the arbitrator believed the requirement did not apply because here the parties’ arbitration clause incorporated the rules of the AAA as controlling, and
The arbitrator‘s conclusion under the AAA rules that a party may receive attorneys’ fees, although not otherwise entitled to attorneys’ fees under New York‘s “unmistakably clear” standard, was not unreasonable. Therefore, it cannot be overturned by this Court under the manifest disregard of the law standard. In fact, there is support for the arbitrator‘s conclusion in this Court‘s prior holdings. We have held that the power to
Even if this Court were of the view that the AAA rules did not grant the arbitrator broader authority to award attorneys’ fees than New York‘s “unmistakably clear” standard, that the arbitrator gave the
Finally, contrary to CRTV‘s argument, a New York choice of law provision in the agreement to arbitrate, without greater specificity, does not bar damages permitted under the FAA and AAA rules, but barred by New York law. For example, an arbitrator is empowered to award punitive damages, in accordance with FAA rules, despite the fact
We next examine whether the arbitration award against CRTV and in favor of OHM should be vacated. CRTV argues that the court erred in confirming the arbitrator‘s award as to OHM because there was no agreement to arbitrate between OHM and CRTV. OHM, however, argues that CRTV does not have the right to contest arbitrability, since it manifested its clear and unmistakable intent to subject itself to the arbitration process, waiving any objection thereto. We find OHM‘s argument unpersuasive and the award for OHM should be vacated.
Under established law, “[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise” (Howsam v Dean Witter Reynolds, Inc., 537 US 79, 83 [2002] [internal quotation marks omitted]); First Options of Chicago, Inc. v Kaplan, 514 US 938, 943 [1995] [“Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question who has the primary power to decide arbitrability turns upon what the parties agreed about that matter“] [internal quotation marks omitted]; AT & T Tech., Inc. v Communications Workers of Am., 475 US 643, 649 [1986] [“Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator“]).
Arbitration is a matter of contract, and a party cannot be forced to arbitrate a dispute that it did not expressly agree to submit to arbitration (AT & T Tech., Inc. v Communication Workers of America [Goldberg], 475 US at 648; Matter of Waldron [Goddess], 61 NY2d 181 [1984]).
Here, it is uncontested that there was no agreement to arbitrate between OHM and CRTV. OHM was not even a named party in CRTV‘s original demand for arbitration; OHM‘s appearance was made on a counterclaim. CRTV did not sign a submission agreement with respect to OHM‘s counterclaim, and CRTV answered the counterclaim with an objection to jurisdiction. OHM‘s reliance on Matter of Arbitration between Halcot Navigation Ltd. Partnership v Stolt-Nielsen Transp. Group, BV (491 F Supp 2d 413, 417-419 [SD NY 2007]), is misplaced, since in that case, Halcot, the party denying arbitrability of its claim, requested that the arbitrator decide that objection as a “preliminary issue.” After discovery and briefings, the three arbitrator panel decided against Halcot. Thus, the court found Halcot‘s attempt to vacate the arbitration on jurisdictional grounds to be a “second bite at the apple.”
Here, however, as with the Kaplans in First Options, supra, no request was made for the arbitrator to decide arbitrability. Only after objecting did the arbitration proceed, and the
Cases cited by OHM dealing with whether parties disagreed on the scope of arbitration are not comparable to this matter, where the issue is whether a party had the right to arbitrate at all (see e.g. T.Co Metals, LLC v Dempsey Pipe & Supply, Inc., 592 F3d 329 [2d Cir 2010]). Indeed, the court in T.Co Metals noted that its decision was based, in part, on the fact that the arbitrator was empowered by a broadly worded arbitration agreement between the parties.
OHM‘s argument that the Term Sheet, which incorporated AAA Rules, thus left the issue of arbitrability to the arbitrator, is also unpersuasive. OHM was not a party to the Term Sheet, and is thus not entitled to invoke it (compare Lapina v Men Women N.Y. Model Mgt., Inc., 86 F Supp 3d 277 [SD NY 2015]). OHM has not shown that a “sufficient relationship” existed between it and CRTV such that CRTV is obligated to arbitrate claims with OHM (compare Contec Corp. v Remote Sol., Co., 398 F3d 205 [2d Cir 2005] [arbitration appropriate for nonsignatory where parties conducted themselves as subject to the agreement at issue regardless of change in corporate form]).
Nor were the issues between OHM and CRTV so intertwined with those between CRTV and Steyn, such that CRTV would be estopped from avoiding arbitration (compare Choctaw Generation Ltd. Partnership v American Home Assur. Co., 271 F3d 403, 404-405 [2d Cir 2001] [where owner signed arbitration agreement with general contractor containing an arbitration provision, owner was estopped from avoiding arbitration of the related claims of the surety bondholder, with which it also had an agreement]; Astra Oil Co., Inc. v Rover Nav., Ltd., 344 F3d 276 [2d Cir 2003] [where both Astra and its affiliate AOT brought claims against Rover arising from delay in cargo shipment, Rover was estopped from refusing to arbitrate Astra‘s claims under an arbitration clause in a contract between Rover and AOT]). Here, the services under the OHM letter agreement arose, but differed, from the work created by the Term
We have considered the parties’ remaining contentions and find them unavailing.
Accordingly, the judgment of the Supreme Court, New York County, (Eileen Bransten, J.), entered November 2, 2018, which, to the extent appealed from, vacated the arbitration awards of attorneys’ fees to petitioners and entered a money judgment against respondent in favor of petitioner Oak Hill Media, Inc. should be reversed, on the law and the facts, without costs, the money judgment award in favor of OHM vacated, and the arbitration awards of attorneys’ fees to Steyn reinstated. The appeals from the orders, same court and Justice, entered July 16, 2018 and July 23, 2018, should be dismissed, without costs, as subsumed in the appeal from the judgment.
All concur.
Judgment, Supreme Court, New York County, (Eileen Bransten, J.), entered November 2, 2018, reversed, on the law and the facts, without costs, the money judgment award in favor of OHM vacated, and the arbitration awards of attorneys’ fees to Steyn reinstated. Appeals from orders, same court and Justice, entered July 16, 2018 and July 23, 2018, dismissed, without costs, as subsumed in the appeal from the judgment.
Opinion by Renwick, J.P. All concur.
Renwick, J.P., Gische, Kapnick, Kern, Moulton, JJ.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: JULY 2, 2019
CLERK